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Johannesburg - The manufacturing sector's performance in the second quarter of 2011 was "dreary", leading to more job losses, the Manufacturing Circle said on Tuesday.
"Conditions in the domestic manufacturing sector were dreary... growth in sales increased at a slower pace, on the back of a downward shift in global growth and slower domestic demand," it said in a statement.
The Manufacturing Circle is a group of major manufacturing companies including SABMiller [JSE:SAB], ArcelorMittal SA [JSE:ACL], Pretoria Portland Cement [JSE:PPC], Hulamin [JSE:HLM], Mondi [JSE:MND], BMW and Altron.
A member survey of 56 CEOs found that although manufacturing sales remained positive during the second quarter, the growth in sales, both domestic and exports, had risen at a slower pace.
Export sales growth was driven by increased sales to the rest of Africa, although exporters to these markets were facing greater competition from Chinese products.
The survey found that input costs had increased dramatically, with only 11% of respondents saying their cost base had decreased.
This was due mainly to higher administered costs and commodity prices.
"South Africa's relatively high cost base, depletion of physical infrastructure and an uncompetitive exchange rate is undermining manufacturing in this country," said Stewart Jennings, chairman of the Manufacturing Circle and CEO of PG Group.
"The significant decline in the manufacturing sector's contribution to economic growth (from 22% of gross domestic product to about 14%) and the loss of nearly 1 million jobs is cause for serious concern."
Jennings called for bold intervention from the government to revive the sector and boost employment.
Respondents said employment levels had dropped in the second quarter.
The number of manufacturers that had shed jobs by 5% or more increased from 11% in the first quarter to 23% in the following quarter.
This reflected figures as recorded by Statistics SA, which found that the number of jobs in manufacturing declined 3.8% over the two quarters.
"Factors driving down employment include lower production and a volatile economic environment, which discouraged the creation of new work opportunities and the intake of new workers," the Manufacturing Circle said.
Strikes take their toll
Strikes in the third quarter would probably negatively impact jobs in the third quarter, it said.
Iraj Abedian, economist at Pan-African Investment and Research Services and adviser to the Manufacturing Circle, said South Africa needs an enabling, stable macroeconomic environment where the cost of production is relatively low.
"This will help to ensure lower prices and will eventually increase both domestic and international demand.
"However, major cost factors such as rising production cost base together with uncompetitive and volatile exchange rates have hindered optimal manufacturing production levels in South Africa and need to be urgently addressed," he said.
The Manufacturing Circle expects conditions to worsen in the next two quarters due mainly to the volatile, strong rand which erodes competitiveness and increases competition from cheap imports.
"Furthermore, deteriorating global economic conditions are impacting negatively on the demand for South African exports, while the lacklustre domestic demand is keeping growth at a subdued level," it said.
This was likely to lead to negative growth in employment in manufacturing of about -2.9%.
"The long-term view is slightly more encouraging, as the majority of manufacturers expect conditions to either stabilise or improve within two years.
"This is mainly driven by a growing market in the African continent, notwithstanding competition from the East."
Growth could be constrained by factors including infrastructural bottlenecks, rising administered prices, the regulatory environment and negative perceptions about the labour market.
"Conditions in the domestic manufacturing sector were dreary... growth in sales increased at a slower pace, on the back of a downward shift in global growth and slower domestic demand," it said in a statement.
The Manufacturing Circle is a group of major manufacturing companies including SABMiller [JSE:SAB], ArcelorMittal SA [JSE:ACL], Pretoria Portland Cement [JSE:PPC], Hulamin [JSE:HLM], Mondi [JSE:MND], BMW and Altron.
A member survey of 56 CEOs found that although manufacturing sales remained positive during the second quarter, the growth in sales, both domestic and exports, had risen at a slower pace.
Export sales growth was driven by increased sales to the rest of Africa, although exporters to these markets were facing greater competition from Chinese products.
The survey found that input costs had increased dramatically, with only 11% of respondents saying their cost base had decreased.
This was due mainly to higher administered costs and commodity prices.
"South Africa's relatively high cost base, depletion of physical infrastructure and an uncompetitive exchange rate is undermining manufacturing in this country," said Stewart Jennings, chairman of the Manufacturing Circle and CEO of PG Group.
"The significant decline in the manufacturing sector's contribution to economic growth (from 22% of gross domestic product to about 14%) and the loss of nearly 1 million jobs is cause for serious concern."
Jennings called for bold intervention from the government to revive the sector and boost employment.
Respondents said employment levels had dropped in the second quarter.
The number of manufacturers that had shed jobs by 5% or more increased from 11% in the first quarter to 23% in the following quarter.
This reflected figures as recorded by Statistics SA, which found that the number of jobs in manufacturing declined 3.8% over the two quarters.
"Factors driving down employment include lower production and a volatile economic environment, which discouraged the creation of new work opportunities and the intake of new workers," the Manufacturing Circle said.
Strikes take their toll
Strikes in the third quarter would probably negatively impact jobs in the third quarter, it said.
Iraj Abedian, economist at Pan-African Investment and Research Services and adviser to the Manufacturing Circle, said South Africa needs an enabling, stable macroeconomic environment where the cost of production is relatively low.
"This will help to ensure lower prices and will eventually increase both domestic and international demand.
"However, major cost factors such as rising production cost base together with uncompetitive and volatile exchange rates have hindered optimal manufacturing production levels in South Africa and need to be urgently addressed," he said.
The Manufacturing Circle expects conditions to worsen in the next two quarters due mainly to the volatile, strong rand which erodes competitiveness and increases competition from cheap imports.
"Furthermore, deteriorating global economic conditions are impacting negatively on the demand for South African exports, while the lacklustre domestic demand is keeping growth at a subdued level," it said.
This was likely to lead to negative growth in employment in manufacturing of about -2.9%.
"The long-term view is slightly more encouraging, as the majority of manufacturers expect conditions to either stabilise or improve within two years.
"This is mainly driven by a growing market in the African continent, notwithstanding competition from the East."
Growth could be constrained by factors including infrastructural bottlenecks, rising administered prices, the regulatory environment and negative perceptions about the labour market.
